Info about virtual currencies such as Bitcoin, Ethereum, and Dogecoin seems to be everywhere right now. Read more to find out if you should be investing in these new money types, and what they might mean for the future of money.
I first learned about cryptocurrency in 2011.
The first time I heard the term was in an early episode of NPR’s economics podcast Planet Money about this new thing call “Bitcoin.” Yes, that’s right, I knew about Bitcoin before Bitcoin was cool. (And I’ve also been listening to podcasts for way more than a decade, but that’s another story).
I can remember listening to the episode and thinking, this is not for me! It sounded like a way for bad people to do bad things on the dark web and not be traced. I wanted no part of it. And until recently, the reputation of Bitcoin has been relatively shady. No thanks.
[As an aside: I wonder what Ronald Mann, the Columbia Law School professor who predicted Bitcoin wouldn’t exist in five or 10 years, thinks about Bitcoin now? I couldn’t find any information online about his now views on Bitcoin, but he’s still at Columbia.]
Because of my negative view of Bitcoin, I have never had Bitcoin FOMO (at least for more than a minute). I don’t think, “Hey, if I had only bought $500 worth of Bitcoin in 2011 when it was about $20, I would be a gazillionaire.” In general, I’m not a fan of doing this kind of backward looking calculations.
Why now?
Several reasons prompted me to purchase a small amount of cryptocurrency, chiefly to learn about the concept. None of them involve the current sky-high price of cryptocurrency, or Elon Musk tweeting about Bitcoin.
Coinbase
Coinbase, the largest cryptocurrency exchange, went public in April, lending some authenticity and relative safety to buying and selling cryptocurrency.
While I have not invested in its stock, that it is a public company includes some protections for users of the platform. Coinbase is evidence that cryptocurrency is becoming more accepted and mainstream.
Taxes
*this may seem odd, but because taxes are now required to be paid on any cryptocurrency gains, there is a certain amount of legitimacy to it. I find that reassuring, and evidence that governments are recognizing the existence of virtual currency.
NFTs
*NFTs, or non-fungible tokens, are fascinating to me. As a writer and sometimes artist, I find the creative process for digital art in a completely new field fascinating. Since the chief way that people purchase them is with Ethereum, one of the most popular types of Cryptocurrency, it made sense for me to have some Ethereum and see how purchasing it and exchanging it works.
My cryptocurrency “portfolio”
So a few weeks ago, I started an account on Coinbase and bought a small amount of Ethereum. I received a $5 bonus in Bitcoin for creating an account, and so I now own a tiny bit of Bitcoin (that Coinbase tells me is worth $3.31 as I post this—ouch!).
My goals
- learn more about virtual currency in general and the most popular and interesting forms of cryptocurrency.
- consider investing in newer forms of cryptocurrency that might not have Bitcoin’s shady reputation.
- create several series of NFTs and list on art exchanges, as a side project.
- be able to counsel my young adult kids and clients about cryptocurrency if they express an interest.
Should you buy cryptocurrency?
- If you want to or think you can get rich quick on cryptocurrency: no.
- If you have significant debt of any kind: no.
- If the recent media attention to cryptocurrency has you FOMO: no.
- If you are being pressured by the go-go nature of cryptocurrency portrayal in the media: no.
There’s an oft-quoted Warren Buffett line: “Be fearful when others are greedy and greedy only when others are fearful.”
But that’s not the full quote, which was part of a section of Buffett’s 2004 letter to Berkshire Hathaway investors:
Here is the quote in context:
Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.
Warren Buffett, 2004 Letter to Berkshire-Hathaway Investors
——
Notice that Buffett was specifically talking to investor who “insist” on trying to time the market, not people who buy stocks, bonds, real estate, or other things as buy-and-hold investments.
What’s my view? I do not think that people should be greedy in any circumstance. Now seems like a time when a lot of people are being greedy about cryptocurrency, it might make sense to stay away from this type of investment or currency type.
At the same time, people should always be up to date on best financial practice. Back in the 1980s, when I graduated from college, Roth IRAs didn’t exist, for example. And savings accounts could produce 10 percent or more of interest per year—wouldn’t we all love that today?
My thoughts
So, if you still want to invest in cryptocurrency, here are some ideas:
Be sure you are taking care of your main financial goals through normal means:
- saving as much as possible, especially in tax-advantaged accounts.
Invest a small amount of money in an account on a reputable cryptocurrency exchange such as Coinbase.
(This link is for a referral program, where we both get $10 for having an account on Coinbase.)
Take advantage of any “rewards” offered.
Coinbase (at the time I opened my account) offered free cryptocurrency for learning about different types. This is both to learn about cryptocurrency, and to accumulate small amounts of cryptocurrency. If you have some extra time, it is free money.
Educate yourself on what cryptocurrency means for the future of money.
Be willing to learn, to understand that you don’t know what you don’t know. Always be learning!
For additional reading
Here are some resources for and against the concept of cryptocurrency:
- Crypto Resources: What You Should Read, Watch, and Stream in Crypto (good essentials from Coinbase)
- Andy Hill of the Marriage, Kids, & Money podcast featured me on the episode, “Should You Invest in Cryptocurrency? 13 Personal Finance Experts Weigh In.” I was honored to be included among money experts such as Paula Pant, Mindy Jensen, Jonathan Teixeira, and others.
- Ban Cryptocurrency to fight ransomware (WSJ Op-Ed)
- Risks to Consumers Posed by Virtual Currencies. From the Consumer Finance Protection Board, a government agency for information and learning. This document is from 2014, but it provides some helpful history.
